CAIRO: Russian telecom operator Vimpelcom and Naguib Sawiris’ Weather Investments sealed a deal Tuesday worth $6.6 billion that will create the world’s fifth largest mobile telecommunications carrier by subscribers.
Under the terms of the agreement, Vimpelcom will acquire from Weather Investments a 51.7 percent stake in Orascom Telecom and 100 percent of Wind Italy, excluding OT’s 34.7 percent stake in Egyptian telecom operator Mobinil.
Prior to the deal, Sawiris’ Weather owned 100 percent of Italy’s Wind Telecommunicazioni as well as a controlling stake in Orascom Telecom Holding.
Vimpelcom said that as part of the new deal, Weather will receive $1.8 billion in cash, a 20 percent economic stake and an 18.5 percent voting stake in the enlarged Vimpelcom group. Minority shareholders in Vimpelcom will represent 17 percent economic rights and 15.7 percent voting rights.
The transaction breaks the record for the biggest international deal by a Russian company.
Sawiris, Weather Investments’ executive chairman, said, "This landmark transaction is a true reflection of the high quality of our Orascom Telecom and Wind Italy assets and of the significant value that we have created over the years for our shareholders.”
The two telecom players share a common vision “of the exciting prospects of our new, enlarged and diversified telecoms platform,” added Sawiris, who will have a seat on Vimpelcom’s supervisory board.
“I am confident that our minority shareholders in Orascom Telecom will benefit from the synergies created by the combination of the two entities, especially in the area of procurement, and by the overall strengthening and de-risking of the Orascom Telecom balance sheet,” he continued.
According to a statement, the companies have combined pro forma net operating revenues of $21.5 billion.
The companies claim that there is significant potential for value creation from synergies between Vimpelcom and Weather’s operations, estimating net present value of $2.5 billion, which they expect to be derived from procurement opex and capex.
The deal stipulates that Weather shareholders contribute their shares in the firm to Vimpelcom in exchange for a consideration consisting of 325.64 newly issued Vimpelcom common shares (worth $4.8 billion) and certain assets that will be demerged from Orascom Telecom and from Wind Italy.
The $1.8 billion will be financed from existing cash balances and new debt facilities.
Orascom’s operations in Egypt and North Korea were included in the deal but will be demerged in the third quarter of 2011, Vimpelcom said. Greece’s Wind Hellas Telecommunications is entirely excluded from the transaction.
The share sale and exchange agreement awaits final approvals from the boards and shareholder of both companies.
Sawiris told Reuters that the planned tie-up has a 90 percent chance of going through.
Vimpelcom’s board is due to meet before the end of the year with receipt of regulatory approvals and completion of the transaction expected in the first quarter of 2011.
The demergers are to be completed by quarter three of 2011.
The fate of Orascom’s Algerian unit has yet to be determined but Vimpelcom said it wanted to keep Djezzy. The unit has been at the center of a row with Algiers over back taxes and the state’s claim it has the right of first refusal to buy it, Reuters reported.
“Vimpelcom’s supervisory board has fully endorsed Vimpelcom’s expansion strategy and the proposed transaction with Weather. This combination creates a top tier global telecoms company with strong platforms across Europe, Asia and Africa,” said Jo Lunder, chairman of Vimpelcom.
Alexander Izosimov, Vimpelcom’s CEO, said, the deal “marks a transformational transaction for Vimpelcom.”
He added, “It offers our shareholders exposure to attractive growth markets in both Asia and Africa and the opportunity to diversify further our revenue base in terms of geography, currency and market characteristics.
“It also positions Vimpelcom to take full advantage of the significant opportunities that we see in the fast-growing mobile data services market and to leverage the experience that already exists in this area within Wind Italy and other parts of the Weather group.”
OT will remain listed on the Egyptian Stock Exchange and will be quoted on the London Stock Exchange. Sawiris said that OT’s stock will be split into two stocks, while “both entities will be listed on the Egyptian Exchange… the stock which has the old Orascom Telecom … and the other stock will include the demerged assets, which is mainly the Egyptian assets and North Korea,” reported Reuters. This should take place in the next two months.
Izosimov said he hoped that the Russian firm’s purchase of Orascom’s disputed asset will be discussed in high level Russia-Algeria talks on Wednesday. The Algerian government is trying to nationalize Orascom’s Algerian unit Djezzy.
Cairo-based investment firm Beltone Financial said, the timing of the announcement is “strategic to its completion, ahead of the Russian delegation to Algeria this week, which might play a role in determining the fate of this deal.
“In spite of the potential Russian political/economic pressure on the Algerian government to push the deal forward, we believe that the Algerian government will ensure it obtains a share of the financial benefit, potentially through acquiring at least a 49 percent stake in Djezzy (according to the Algerian government’s previous declarations), or the assigning of a capital gains tax on the proceeds from the sale of the remaining stake in Djezzy.”
Beltone recommends a “buy” for OT while acknowledging the associated “high risk.”
Alexander Izosimov, Vimpelcom’s CEO. (AFP Photo)